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Management Registry, Inc. v. A.W. Companies, Inc.

United States District Court, D. Minnesota

February 27, 2018


          James M. Morris, MORRIS & MORRIS, P.S.C., and Laura J. McKnight, JACKSON LEWIS P.C., for plaintiff.

          Darren M. Sharp, SCHAEFER HALLEEN LLC, for defendants.



         Plaintiff Management Registry, Inc. (“MRI”) brought this diversity action against Defendants A.W. Companies, Inc. (“A.W.”), Allan and Wendy Brown, and Eric Berg for events that transpired after MRI acquired numerous business entities from Mr. Brown. Defendants filed their Answer and assert counterclaims against MRI. MRI now moves to compel Mr. Brown to arbitrate three of his counterclaims against MRI pursuant to the Federal Arbitration Act (“FAA”), arguing that those three counterclaims are subject to arbitration under Mr. Brown's employment agreement with MRI. Because those counterclaims are subject to a binding arbitration clause, the Court will grant MRI's motion and order Mr. Brown to arbitrate those counterclaims.


         In September 2017, MRI acquired several business entities from Mr. Brown. (First Am. Compl. ¶ 13, Nov. 21, 2017, Docket No. 59.) Before that acquisition closed, MRI and Mr. Brown entered into an employment agreement whereby Mr. Brown would help lead the companies that MRI would acquire. (Id. ¶¶ 16-21, Ex. A.) That employment agreement contains a mandatory-arbitration clause that provides:

The Company and Executive agree that any dispute that may arise between them regarding Executive's employment with Company, or the termination of Executive's employment with Company, must be submitted for resolution by binding arbitration in Jefferson County, Kentucky in accordance with the most current Employment Dispute Resolution Rules of the American Arbitration Association (AAA), and judgment upon the award rendered by the Arbitrator may be entered in any court having jurisdiction thereof. The arbitration shall be conducted before a neutral arbitrator selected by both parties from the American Arbitration Association Labor and Employment Panel, with the parties to share equally in the costs associated with the arbitration.

(Id. ¶ 16, Ex. A at 8, ¶ 21 (emphasis added)).

         Around the time of the acquisition, there was an understanding that, after closing, MRI would sell one of the twelve acquired companies, titled AllStaff Recruiting, Inc. (“ARI”), to Mr. Brown's wife, Wendy Brown. (Ans., Affirmative Defenses and Countercls. to First Am. Compl. (“Answer”) ¶¶ 235-236, 240-244, Dec. 5, 2017, Docket No. 72.) The sale of ARI to Ms. Brown never happened, and the parties vigorously dispute both the lead-up to, and the aftermath of, that never-completed sale. (Compare Answer ¶¶ 240-243, with Pl.'s Resp. to Defs.' Countercls. ¶¶ 240-243, Dec. 26, 2017, Docket No. 96.) One fact not in dispute is that Mr. Brown's employment with MRI ended in October 2017, although the parties dispute whether he resigned or was fired. (Compare First Am. Compl. ¶¶ 42-43, with Answer ¶¶ 42-43, 313-314, 355.)

         MRI brought this action against the Browns, their newly formed company A.W., and Eric Berg. Mr. Brown asserts counterclaims against MRI related to his now-terminated employment with MRI. Specifically, he asserts a counterclaim for breach of contract (Count II), alleging that MRI fired him without cause; and counterclaims for common-law fraud (Count VII) and negligent misrepresentation (Count VIII), alleging that MRI induced Mr. Brown to enter into the employment agreement with MRI by falsely representing to Mr. Brown that MRI would sell ARI to Ms. Brown. (Answer ¶¶ 353-358, 383-399.) MRI moves to compel Mr. Brown to arbitrate these three counterclaims, pursuant to the arbitration clause in the employment agreement.



         For arbitration agreements, the FAA provides that a party may petition a district court “for an order directing that such arbitration proceed in the manner provided for in such agreement.” 9 U.S.C. § 4. Substantively, the FAA requires a court to enforce a written arbitration agreement as it would any other contract. 9 U.S.C. § 2 (“A written provision . . . to settle by arbitration a controversy . . . shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract.”).

         There is a strong federal policy in favor of enforcing arbitration agreements. Moses H. Cone Mem'l Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 24 (1983). If claims are arbitrable under the FAA, the claims must be referred to arbitration, and the judicial proceedings related to the claims must be stayed pending that arbitration. See Id. at 20 & n.23; 9 U.S.C. ยงยง 2, 3. In determining whether a claim is arbitrable, the court must first decide whether a valid agreement to arbitrate exists between the parties, and then ...

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